JP Morgan JUST went Bearish Stocks | Here’s Why
Overall Thesis
JP Morgan has turned tactically bearish on stocks in the near term due to Fed policy uncertainty and potential rate hike risks, though they don't predict an imminent recession.
Narratives
Kevin explains JP Morgan's tactically cautious stance on tech-heavy stocks over the next few weeks due to Fed uncertainty and a reluctance among traders to re-leverage after a hawkish Fed speech. He personally believes the near-term recession risk is low but is building a longer-term thesis that AI overbuilding, tariffs, and high oil prices could compound into a larger bubble risk a few years out.
Key Arguments
- The Nasdaq-100 repeatedly rejected the 715 level intraday, showing underlying softness after a hawkish Fed speech from Kevin Worsh.
- Traders are reluctant to lever up heading into the September Fed meeting, which JP Morgan sees as a near-term risk.
- Long-term overbuilding in AI combined with tariff, geopolitical, and oil price risks could compound recession risk two to three years out.
Predictions (1)
Kevin reports JP Morgan's near-term tactical caution on stocks due to Fed meeting risk, credit spread widening, and heavy issuance, but he personally maintains a bullish bias on his own 1-10 scale and expects a bullish squeeze into year-end, especially after the midterms, citing historically strong post-midterm seasonality.
Key Arguments
- September is historically the worst month for the S&P 500 while Q4 is historically the strongest.
- Since 1990, the S&P 500 has rallied with a 78% hit rate after midterms, and 100% hit rates over 6, 9, and 12-month periods.
- Corporate profits rose 41% quarter-over-quarter, one of the best quarterly outcomes in over 20 years excluding recovery periods.
Kevin notes that Broadcom's upcoming earnings are seen by JP Morgan as a potential catalyst for the broader hardware/AI trade, pointing out that the stock fell over 20% after its last earnings report and has derisked about 25% from its June high. He does not commit to a directional call on the stock itself, framing it mainly as a risk event to watch.
Key Arguments
- Broadcom stock dropped over 20% after its last earnings report, falling from a $494 high to around $369.
- JP Morgan views Broadcom's upcoming earnings as a key test for whether the 'hardware 2.0' rally can continue.
Hedges & Caveats
- JP Morgan is only tactically bearish for the next few weeks, not strategically
- Recession probability estimated at only 23% according to JP Morgan's measures
- Underlying economic fundamentals remain strong
- Host maintains a 7.1/10 bullish bias on the bull-bear scale
- Long-term risks (AI bubble, tariffs, geopolitical tensions) may compound recession risk 2-3 years out
- Host notes lack of releveraging in markets may limit downside
- Uncertainty around September FOMC meeting and potential rate hike timing